President Trump's initial actions

In focus today

Markets continue to pay close attention to President Trump's initial actions. It is expected that he will issue a series of executive orders to further build his momentum throughout the week, resulting in US news dominating the headlines.

Today, the German ZEW index for January is released. The assessment of the current economic situation has remained on a downward trend while expectations for the future have rebounded lately. It will be interesting to see if these developments changed in January.

Economic and market news

What happened overnight

In the US, President Trump was busy overnight saying he would impose 25% tariffs on imports from both Canada and Mexico over border problems on 1 February. He also threatened the EU over the US trade deficit with Europe, suggesting that either tariffs or increased EU oil purchases from the US could be a solution. The potential tariffs on China were linked to whether a TikTok deal could be reached. Additionally, he signed several executive orders, including restricting entry into the US, deploying troops at the Mexican border, withdrawing the US from the World Health Organization and pardoning 1.500 January-6 rioters.

What happened yesterday

In the US, Donald Trump was inaugurated as the 47th President and delivered his first address in this role. In his speech, he outlined his legislative and policy priorities, centered around ushering in an American golden age, with a focus on anti-immigration measures and unleashing US oil production. It was also announced that the US also is withdrawing from the Paris accord, dealing a massive blow to international climate efforts. Noticeably absent, no tariffs were announced causing the USD to lose the momentum it had been gaining in the days before the inauguration.

Equities: Global equities rose yesterday ahead of the Trump inauguration. It is important to remember that most cash trading was closed, as the US had a bank holiday for Martin Luther King Day. Consequently, Trump and his team's performance should largely be assessed through the actions in futures, yields, FX, and related assets. We have witnessed some roller-coaster moves, but nowhere near what one might have expected or feared. As we are now past the most speeches and the first batch of executive orders has been signed, we can conclude that the inauguration did not have an outsized market impact. In other words, what we saw and heard from Trump and his team yesterday was more or less as expected. It was merely the first day in office for the president, which investors viewed positively for risky assets when he was elected back in November.

Asian cash markets were mixed this morning, with Chinese H-shares in Hong Kong leading the advance. This could be seen as a result of the lack of comments on China in the presidential speeches, where tariffs against Canada and Mexico received more attention from the president. European futures are lower this morning but have fluctuated during this morning's trading. At the time of writing, the Euro Stoxx 50 futures are down by 0.3%, which again must be characterised as a non-outsized move. US futures are marginally in the green, though it is important to note that the US has some catching up to do with the European cash session from yesterday.

FI: With US closed for Martin Luther King's Day and all focus on President Trump's inauguration, FI markets were very calm trough the European session yesterday. Overnight, a softer-than-expected series of executive orders from the new president triggered a significant rally in US rates markets, with the 10Y UST yield down 9bp to roughly 4.55%, and the 2s10s curve flattening some 3bp. While the risk associated with Trump's policy package persists, we believe that long-term US yields have further room to decline. There is ample scope to factor in additional rate cuts in 2025-26, beyond the current pricing of 70bp, should inflation data continue to soften.

FX: The USD initially weakened against the rest of G10 currencies yesterday following a Wall Street Journal story that suggested US will not rush into new trade restrictions. Meanwhile, that partly reversed overnight with Trump specifying plans to enact 25% tariffs on Mexico and Canada by 1 February. Alongside broader risk sentiment the CAD and MXN both took a hit although to levels that remain stronger via-a-vis the USD than prior to the Wall Street Journal article. The FX market will remain highly alert to tariff news in the coming sessions, and we expect quite a bit of noise.